Greenbook Summarizes Revenue Raisers for Biden’s Second Budget

On March 28, 2022, the Biden Administration released its fiscal year 2023 budget, the second of his administration. Accompanying the budget was the US Department of the Treasury's (Treasury) "General Explanation of the Administration's Fiscal Year 2023 Revenue Proposals," known as the Greenbook because of its historically green cover. These revenue proposals are just that—proposals to Congress for legislative action. Congress can select particular proposals to incorporate in legislation.

Treasury’s Greenbook is accompanied by its revenue estimates of the proposals, which are estimated to raise a net amount of over $2.5 trillion. It is interesting to note that the baseline for this year’s Greenbook generally includes revenue provisions of Title XIII of the Build Back Better Act, as passed by the House of Representatives on November 19, 2021. This means that the Greenbook assumes that the provisions in the tax title of the Build Back Better Act, including the 15% minimum tax on book earnings for large corporations, the revisions to the GILTI regime, a 1% excise tax on stock buybacks, and a surtax on income exceeding $10 million, will be enacted and does not separately propose them. Similar to last year, the Greenbook does not propose relief from the $10,000 SALT cap.

More detailed summaries of the provisions in the Greenbook are discussed below under the following headings:

• General Corporate Provisions

• International Tax Provisions

• Pass-Through and Real Estate Business Provisions

• High-Income Taxpayer Provisions

• Exempt Organization Provisions

• Energy Tax Provisions

• Digital Asset Provisions

• Compliance and Enforcement Provisions

General Corporate Provisions

Corporate Rate Increase

Similar to the 2022 Greenbook, the proposal would increase the income tax rate for C corporations from 21% to 28%, effective for taxable years beginning after December 31, 2022. Accordingly, for calendar year taxpayers the first year that the 28% rate would apply would be the taxable year ending December 31, 2023. For fiscal year taxpayers with taxable years beginning after January 1, 2022 and ending before December 31, 2023, the tax rate would be equal to 21% plus 7% times the portion of the taxable year that occurs in 2023.

Corporate Definition of Control

The Greenbook would add a new proposal to conform the section 368(c) test for control that applies to reorganizations and incorporations with the "affiliation" test in section 1504(a)(2). Under current law, section 368(c) requires ownership of stock possessing at least 80% of the total combined voting power of all classes of voting stock and at least 80% of the total number of each class of nonvoting stock. The proposal would change this rule to match section 1504(a)(2) and require 80% of the total voting power of the stock of the corporation and at least 80% of the total value of the stock of the corporation. The administration views this revised rule as less susceptible to manipulation by taxpayers and as reducing the complexity caused by having inconsistent tests.

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International Provisions

Adopt the Undertaxed Profits Rule

The 2017 Tax Act enacted section 59A, which imposes a Base Erosion Anti-Abuse Tax (BEAT) liability on certain large multinational corporate taxpayers that make "base erosion payments" (e.g., interest, royalties, service payments) to foreign related parties. The Build Back Better Act would have made several modifications to the BEAT. However, on October 8, 2021, the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting reached a comprehensive agreement on a 15% global minimum tax under Pillar Two. On December 20, 2021, it published Model Rules that described two interlocking Pillar Two rules: (a) an Income Inclusion Rule (IIR), which imposes a top-up tax on a parent entity with respect to the low-taxed income of a member of its financial reporting group, and (b) an Undertaxed Profits Rule (UTPR), which denies deductions or requires an equivalent adjustment to tax liability to the extent that the low-taxed income of a member of the group is not subject to an IIR.

In order to increase alignment between the US international tax rules and the international system emerging from Pillar Two, for taxable years beginning after December 31, 2023, the proposal would repeal the BEAT and replace it with a UTPR that is consistent with the UTPR described in the Pillar Two Model Rules. The UTPR would not apply with respect to income subject to an IIR that is consistent with the Pillar Two Model Rules, including income that is subject to GILTI, and therefore generally would not apply to US-parented multinationals. Additionally, the UTPR would apply only to financial reporting groups that have global annual revenue of $850 million or more in at least two of the prior four years. Several de minimis exclusions also apply.

Under the UTPR, domestic group members would be disallowed US tax deductions to the extent necessary to collect the hypothetical amount of top-up tax required for the financial reporting group to pay an effective tax rate of at least 15% in each foreign jurisdiction in which the group has profits. The amount of this top-up tax would be determined based on a jurisdiction-by-jurisdiction computation of the group's profit and effective tax rate consistent with the Pillar Two Model Rules. The top-up amount would be allocated among all of the jurisdictions where the financial reporting group operates that have adopted a UTPR consistent with the Pillar Two Model Rules. When another jurisdiction adopts a UTPR, the proposal also includes a domestic minimum top-up tax that would protect US revenues from the imposition of UTPRs by other countries.

The computation of profit and the effective tax rate for a jurisdiction is based on the group’s consolidated financial statements with certain adjustments. In addition, the computation of a group’s profit for a jurisdiction is reduced by an amount equal to 5% of the book value of tangible assets and payroll with respect to the jurisdiction. The deduction disallowance applies pro rata with respect to all otherwise allowable deductions and applies after all other deduction disallowance provisions in the Code, with an excess amount of UTPR disallowance carried forward indefinitely.

Provide Tax Incentives for Locating Jobs and Business Activity in the United States and Remove Tax Deductions for Shipping Jobs Overseas

Similar to the 2022 Greenbook, the proposal would create a new general business credit equal to 10% of the eligible expenses paid or incurred with onshoring a US trade or business. "Onshoring" means reducing or eliminating a business or line of business currently conducted outside the United States and starting up, expanding, or otherwise moving the same business within the United States, but only to the extent that this action results in an increase in US jobs. Eligible expenses are limited solely to expenses associated with the relocation of the business and do not include capital expenditures or costs for severance pay and other assistance to displaced workers. While the eligible expenses may be incurred by a foreign affiliate of the US taxpayer, the tax credit would be claimed by the US taxpayer.

In addition, the proposal would disallow deductions for expenses paid in connection with offshoring a US trade or business, to the extent that this action results in a loss of US jobs. In addition, no deduction would be allowed against a US shareholder's GILTI or subpart F income inclusions for any expenses paid or incurred in connection with moving a US trade or business outside the United States.

Expand Access to Retroactive QEF Elections

Under current law, a taxpayer is permitted to make a retroactive Qualified Electing Fund (QEF) election with respect to a passive foreign investment company (PFIC) only with the consent of the Commissioner and only if the taxpayer relied on a qualified tax professional in failing to make the election earlier, granting consent does not prejudice the interests of the government, and the request is made before a PFIC issue is raised on audit. The proposal would modify section 1295(b)(2) to permit a QEF election by the taxpayer a such time and in such manner as shall be prescribed by regulations. The proposal would be effective on the date of enactment. The description of the proposal states that it is intended that regulations or other guidance would permit taxpayers to amend previously filed returns for open years.

Expand Definition of Foreign Business Entity to Include Taxable Units

Under current law, section 6038 requires a US person who controls a foreign business entity (a foreign corporation or foreign partnership) to report certain information with respect to the entity. Proposals in the Build Back Better Act would revise the GILTI regime, the subpart F income regime, and the foreign tax credit rules such that they apply on a jurisdiction-by-jurisdiction basis rather than on an entity-by-entity basis. This proposal would modify the reporting rules in section 6038 to treat any taxable unit in a foreign jurisdiction as a "foreign business entity" for purposes of section 6038. As a result, a single legal entity operating in multiple foreign jurisdictions would be treated as a separate "foreign business entity" in each jurisdiction and the reporting rules in section 6038 would be applied separately for each foreign business entity. The proposal would apply to taxable years of a controlling US person that begin after December 31, 2022 and to annual accounting periods of foreign business entities that end or are within such taxable years of the controlling US person.

Increase Threshold for Simplified Foreign Tax Credit Rules and Reporting

Section 904(j) currently provides an elective exception to the foreign tax credit limitation rules for individuals whose only foreign income is passive income, for whom all such income is reported on a qualified payee statement, and who incur $300 or less in creditable foreign taxes ($600 if married and filing a joint return). The proposal would increase the threshold in the last requirement to $600 ($1200 in the case of a joint return) and index this amount to inflation. The proposal would be effective for foreign income taxes paid or accrued in taxable years beginning after December 31, 2022.

Address Compliance for Expatriates

US taxpayers who renounce US citizenship or abandon lawful permanent resident status must file Form 8854, Initial and Annual Expatriation Statement, with their tax return to provide information to determine whether the individual is subject to the exit tax. For individuals who are required file Form 8854, the proposal provides that the statute of limitations for assessment of tax will not expire until three years after the date Form 8854 is filed with the IRS. Additionally, the proposal would grant authority to the Treasury Department to provide relief from the rules for covered expatriates for individuals who limited contact with the US and have income and assets below a specified threshold.

Simplify Foreign Exchange Rules

The Greenbook proposal would increase the amount exempted from federal income tax purposes for personal transactions involving foreign currency from $200 to $500. The proposal would also allow individuals living and working abroad to use an average rate for the year to calculate income and expenses denominated in foreign currency. Additionally, the proposal would allow individuals to deduct foreign currency losses realized with respect to mortgage debt secured by a personal residence to the extent of any gain taken into income on the sale of the residence as a result of foreign currency fluctuations.

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Pass-Through and Real Estate Business Provisions

Prevent Basis Shifting by Related Parties Through Partnerships

In the case of a distribution of partnership property that results in a step-up of the basis of the partnership’s non-distributed property via a section 754 election, the proposal would apply a matching rule that would prohibit any partner in the distributing partnership that is related to the distributee-partner from benefitting from the partnership’s basis step-up until the distributee-partner disposes of the distributed property in a fully taxable transaction.

Carried Interest

The carried interest proposal is largely identical to those in the 2022 Greenbook. The proposal is described similar to the long line of previous "investment services partnership interest" or "ISPI" proposals to convert "carried interest" capital gain into services income, but with a $400,000 taxable-income floor for such conversion. The Administration's other proposal to increase the top long-term capital gain rate to the top ordinary-income rate already would undercut significantly the tax benefits arising from carried interest arrangements. What the carried interest proposal does that the long-term capital gain proposal does not is subject carried interest income also to the self-employment tax regime (and incorporates certain anti-abuse rules). It also permits the Administration to continue to focus on carried interest even if Congress does not adopt the capital-gain rate changes.

A related proposal would repeal the current three-year carried interest limitation of section 1061, but only for taxpayers whose taxable income exceeds $400,000. This means that if all of these proposals were enacted, there would be one set of limitations for carried interest income recognized by a taxpayer in a year in which taxable income exceeded $400,000 and another set of limitations for carried interest income recognized by the same taxpayer in a year in which taxable income fell below $400,000.

Section 1031 Like-Kind Exchanges

The 2017 Tax Act narrowed the benefits of tax-deferred section 1031 exchanges to like-kind exchanges only involving real property interests. The Administration's proposal is largely identical to the proposal in the 2022 Greenbook and continues to narrow the benefits of section 1031 exchanges by allowing only deferral of gain on like-kind real property exchanges up to an aggregate $500,000 for each taxpayer ($1 million in the case of a married couple filing jointly) each year. Any gains from such exchanges in excess of $500,000/$1 million during a taxable year would be recognized by the taxpayer in the year the taxpayer transfers the real property subject to the exchange.

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High-Income Taxpayer Provisions

Increased Income Taxation on Wealthiest Taxpayers

Increase to Top Marginal Tax Rate: Similar to the 2022 Greenbook, the proposal would increase the top marginal tax rate to 39.6% for married individuals filing a joint return with taxable income over $450,000, unmarried individuals with taxable income over $400,000, heads of household with taxable income over $425,000, and married individuals filing separate with taxable income over $225,000. This proposal would be effective for taxable years beginning after December 31, 2022.

Capital Gains: Similar to the 2022 Greenbook, long-term capital gains and qualified dividends of taxpayers with taxable income of more than $1 million are proposed to be taxed at ordinary rates. This proposal would be effective for gain required to be recognized and dividends received on or after the date of enactment.

Minimum Income Tax: A new proposal this year would require a minimum tax of 20% on total income, generally inclusive of unrealized capital gains, for all taxpayers with wealth of an amount greater than $100 million (that is, the difference obtained by subtracting liabilities from assets). A taxpayer's minimum tax liability would equal the minimum tax rate (that is, 20%) times the sum of taxable income and unrealized gains (including on ordinary assets) of the taxpayer, less the sum of the taxpayer's unrefunded, uncredited prepayments and regular tax. Taxpayers who are treated as illiquid may elect to include only unrealized gain in tradeable assets in the calculation of their minimum tax liability. However, taxpayers making this election would be subject to a deferral charge upon, and to the extent of, the realization of gains on any non-tradeable assets. This proposal would be effective for taxable years beginning after December 31, 2022.

Taxation of Grantor Trusts

Similar to the 2022 Greenbook, this proposal would treat sale transactions and the satisfaction of an obligation (such as an annuity or unitrust payment) with appreciated property between a grantor trust and its grantor as taxable events. The transfer of an asset for consideration between a grantor trust and its deemed owner or any other person would be a realization event for income tax purposes, which would result in the transferor recognizing gain on any appreciation in the transferred asset and the basis of the transferred asset in the hands of the transferee being the value of the asset at the time of the transfer. This proposal would apply to all transactions between a grantor trust and its deemed owner occurring on or after the date of enactment.

In addition, the Greenbook would add a proposal to treat the payment of the income tax on the income of a grantor trust as a gift occurring on December 31 of the year in which the income tax is paid unless the deemed owner is reimbursed by the trust during that same year. This proposal would apply to all trusts created on or after the date of enactment.

The Greenbook also contains proposals similar to the 2022 Greenbook applicable to Grantor Retained Annuity Trusts (GRATs). First, the proposal would eliminate the ability to make a zeroed-out contribution to a GRAT and would require that the remainder interest in a GRAT at the time the interest is created have a minimum value for gift tax purposes equal to the greater of 25% of the value of the assets transferred to the GRAT or $500,000 (but not more than the value of the assets transferred). Second, the proposals would prohibit any decrease in the annuity during the GRAT term and would prohibit the grantor from acquiring in an exchange an asset held in the trust without recognizing gain or loss for income tax purposes. Finally, the proposal would require that a GRAT have a minimum term of ten years and a maximum term of the life expectancy of the grantor annuitant plus ten years. These proposals would apply to all GRATs created on or after the date of enactment.

Forced Gain Recognition

Similar to the 2022 Greenbook, the proposal would require the donor or deceased owner of an appreciated asset to realize a capital gain at the time of the transfer. The amount of the gain realized would be the excess of the asset's fair market value on the date of the gift or on decedent’s date of death over the decedent’s basis in that asset.

Gain on unrealized appreciation also would be recognized by a trust, partnership, or other non-corporate entity that is the owner of property if that property has not been the subject of a recognition event within the prior 90 years. This provision would apply to property not subject to a recognition event since December 31, 1939, so that the first recognition event would be deemed to occur on December 31, 2030. Exceptions are made for transfers to a US spouse or to charity and for transfers of tangible property such as household furnishings and personal effects excluding collectibles. In addition, the proposal would allow a $5 million per donor exclusion on property transferred by gift during life (which is increased from $1 million in the 2022 Greenbook proposal). Any exclusion remaining at death could be used to exclude gain realized on death and any further remaining unused exclusion could be transferred to a surviving spouse. Elections to defer recognition on certain family-owned and operated businesses until the assets are sold or the business ceases to be family-owned and operated and to pay the tax using a 15-year fixed-rate payment plan (other than on liquid assets or assets for which the deferral election is made) would be allowed.

These proposals would be effective for gains on property transferred by gift, and on property owned at death by decedents dying, after December 31, 2022, and on certain property owned by trusts, partnerships, and other non-corporate entities on January 1, 2023.

Consistent Valuation of Promissory Notes

The Greenbook would add a new proposal to require that if a taxpayer treats any promissory note as having a sufficient rate of interest to avoid the treatment of any foregone interest on the loan as income or any part of the transaction as a gift, that note subsequently must be valued for federal gift and estate tax purposes by limiting the discount rate to the greater of the actual rate of interest of the note, or the applicable minimum interest rate for the remaining term of the note on the date of death. This proposal would apply to valuations as of a valuation date on or after the date of introduction.

Trust Reporting Requirements

The Greenbook would add a new proposal to require certain trusts administered in the United States, whether domestic or foreign, to report certain information to the IRS on an annual basis including the name, address, and TIN of each trustee and grantor of the trust and general information with regard to the nature and estimated total value of the trust’s assets as the Secretary may prescribe. This reporting requirement for a taxable year would apply to each trust whose estimated total value on the last day of the taxable year exceeds $300,000 or whose gross income for the taxable year exceeds $10,000. The proposal would apply for taxable years ending after the date of enactment.

Generation-Skipping Transfer (GST) Tax Exemption

The Greenbook would add a new proposal to limit the transfer tax efficiency of dynasty trusts by limiting the benefit of the GST exemption that shields property from the GST tax. The exemption of such trusts from the GST tax would last only as long as the life of any trust beneficiary who either is no younger than the transferor's grandchild or is a member of a younger generation but who was alive at the creation of the trust. Solely for purposes of determining the duration of the exemption, a pre-enactment trust would be deemed to have been created on the date of enactment. This proposal would apply on and after the date of enactment to all trusts subject to the generation-skipping transfer tax, regardless of the trust’s inclusion ratio on the date of enactment.

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Exempt Organization Provisions

Conservation Easement Limitation

In order to address concerns regarding charitable deductions for syndicated conservation easements, the proposal would deny a section 170 charitable deduction for the contribution of a conservation easement by a partnership if the amount of the contribution exceeds two and a half times the partner’s basis in the partnership. This threshold is similar to the one in Notice 2017-10 that announced that these types of transactions were listed transactions. The deduction restriction would not apply if a three-year holding period was satisfied. As with a similar proposal released by the House Ways and Means Committee in September 2021, this provision would be effective for contributions made in taxable years ending after December 23, 2016 (i.e., the effective date of Notice 2017-10), or, in the case of contributions to preserve a certified historic structure, for contributions made in taxable years beginning after December 31, 2018.

Limitation on the Use of Donor Advised Funds to Avoid the Private Foundation Payout

Private foundations generally must distribute at least 5% of the total fair market value of their assets each year. Currently a private foundation can distribute this amount into a donor advised fund without any restrictions or requirements to advise the funds out of the donor advised fund. The proposal provides that a contribution to a donor advised fund from a private foundation is not a qualifying distribution unless the funds are advised out by the end of the following taxable year. This proposal would harmonize the treatment of foundation contributions to a donor advised fund with foundation contributions to other foundations.   

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Energy Tax Provisions

Because the baseline for this year's Greenbook generally includes revenue provisions of tax title of the Build Back Better Act, as passed by the House, including all of the "Green Energy" provisions of the Act, the Greenbook does not include all of the green energy tax provisions from the 2022 Greenbook, such as the direct pay option, a standalone energy storage credit, and a new electricity transmission credit. Treasury does, however, re-propose repealing a wide variety of credits, deductions, and special provisions that are targeted towards fossil fuel production, including:

• The enhanced oil recovery credit for eligible costs attributable to a qualified enhanced oil recovery project
• The credit for oil and gas produced from marginal wells
• The expensing of intangible drilling costs
• The deduction for costs paid or incurred for any qualified tertiary injectant used as part of a tertiary recovery method
• The exception to passive loss limitations provided to working interests in oil and natural gas properties
• The use of percentage depletion with respect to oil and gas wells
• Two-year amortization of geological and geophysical expenditures by independent producers (instead allowing amortization over the seven-year period used by major integrated oil companies)
• Expensing of exploration and development costs
• Percentage depletion for hard mineral fossil fuels
• Capital gains treatment for royalties received on the disposition of coal or lignite
• The exemption from the corporate income tax for publicly traded partnerships with qualifying income and gains from activities relating to fossil fuels
• The Oil Spill Liability Trust Fund (OSLTF) excise tax exemption for crude oil derived from bitumen and kerogen-rich rock (in addition, the Superfund excise tax on crude oil and imported petroleum products would be extended to other crudes such as those produced from bituminous deposits as well as kerogen-rich rock)
• The drawback of OSTLF excise tax when product is exported
• Accelerated amortization for air pollution control facilities

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Digital Asset Provisions

Digital Asset Loans

Under current law, section 1058 generally provides that no gain or loss will be recognized by a taxpayer that lends securities if the transfer of a security is pursuant to an agreement that meets certain requirements. In recent years, a market for the lending of digital assets has developed, and it is now growing rapidly. Except in the case of digital assets that may also be treated as securities, section 1058 does not apply to loans of digital assets. As a result, taxpayers and their advisors have been left to look to pre-section 1058 case law and IRS guidance to attempt to determine whether and when digital asset loans will result in the recognition of gain and loss.

The Greenbook proposal would amend section 1058 to provide that it applies to loans of actively traded digital assets recorded on cryptographically secured distributed ledgers, provided that the loan has terms similar to those currently required for loans of securities. For example, if during the term of a loan the owner of the digital asset would have received other digital assets or other amounts if the loan had not taken place (such as hard forks or airdrops), the terms of the loan agreement should provide that those amounts will be transferred by the borrower to the lender, except as provided by the Secretary. The Secretary would have authority to determine when a digital asset is actively traded, and the authority to extend the rules to non-actively traded digital assets. No inference would be intended regarding the treatment of loans of digital assets under current law

Amend Mark-to-Market Rules to Include Digital Assets

The Greenbook would amend section 475 to explicitly add digital assets as a third category of assets (beyond securities and commodities) subject to mark-to-market accounting at the election of a dealer or trader in those assets. The new rules would apply to actively traded digital assets and derivatives on, or hedges of, those digital assets, under rules similar to those that currently apply to actively traded commodities. The Secretary would have authority to determine which digital assets are treated as actively traded. If enacted, a digital asset would not be treated as a security or commodity for purposes of the section 475 mark-to-market rules and would be eligible for mark-to-market treatment only under the rules applicable to this new third category of assets.

Digital Asset Information Reporting

Similar to the 2022 Greenbook, the proposal would expand on current reporting requirements for financial institutions and digital asset brokers to facilitate the automatic exchange of information under tax treaties. The proposal, if adopted, and combined with existing law, would require a broker to report gross proceeds and such other information as the Secretary may require with respect to sales of digital assets with respect to both US and non-US customers and, in the case of certain passive entities, information concerning their substantial foreign owners. This would allow the United States to share such information on an automatic basis with partner jurisdictions, in order to reciprocally receive information on US taxpayers who, directly or through passive entities, engage in digital asset transactions outside the United States pursuant to an international automatic exchange of information framework.

Foreign Digital Asset Account Reporting

Under current law, section 6038D requires that any individuals, and certain entities, who hold an interest in one or more specified foreign financial assets with an aggregate value of at least $50,000 during a taxable year to attach IRS Form 8938, Statement of Specified Foreign Financial Assets, to their tax return. Section 6038D currently requires the reporting of (1) a financial account maintained by a foreign financial institution and (2) certain specified foreign assets not held in a financial account. Failure to provide the required information can lead to significant penalties.

The Greenbook proposal would amend section 6038D to add a third category of assets subject to reporting and require the reporting of any account that holds digital assets maintained by a foreign digital asset exchange or other foreign digital asset service provider (a “foreign digital asset account”). Reporting would be required only for taxpayers that hold an aggregate value that exceeds $50,000 for all three categories of assets. The Greenbook proposal would define a foreign digital asset account based on where the exchange or service provider is organized or established. The Secretary would have authority to issue regulations to expand the scope of foreign digital asset accounts and to coordinate this requirement with other reporting requirements to minimize duplication or additional burden.

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Compliance and Enforcement Provisions

Amend Centralized Partnership Audit Regime to Address Tax Decreases Greater than a Partner's Income Tax Liability and to Cover Self-Employment Income/Net Investment Income Taxes

Similar to the 2022 Greenbook, the proposal would amend the centralized partnership audit rules to provide that the amount of a reviewed-year partner’s net negative change in tax arising from an audited partnership push-out election under section 6226 that exceeds such partner’s income tax liability in the reporting year would be refundable (preventing such excess amount from being permanently lost). The proposal is unclear whether such change also would apply to analogous circumstances via the filing of an administrative adjustment request that does not result in an imputed underpayment under section 6227.

In addition, the proposal would add a provision expanding the centralized partnership audit regime to cover self-employment income tax and net investment income tax adjustments. 

Extend Statute of Limitations for Assessment for Opportunity Zone Inclusion Events

Following the 2017 Tax Act, if a taxpayer invests an amount of eligible gain in a Qualified Opportunity Fund and elects deferral, that amount of eligible gain is excluded from the taxpayer’s income for the year that the gain is realized and deferred until December 31, 2026, or an earlier date on which any of various inclusion events occurs. The proposal would keep the statute of limitations for IRS assessment open with respect to inclusion events that opportunity zone investors fail to properly report on their tax returns. The provision would allow the IRS to assess deficiencies for up to three years from the date on which the IRS is furnished with all of the information necessary to assess tax with respect to events that require deferred gain to be included in gross income of the investor.

Expand Required Electronic Return Filing

The proposal would require electronic filing for returns filed by taxpayers reporting larger amounts and complex business entities, including:

• Income tax returns of individuals with gross income of $400,000 or more;

• Income, estate, or gift tax returns of all related individuals, estates, and trusts with assets or gross income of $400,000 or more in any of the three preceding years;

• Partnership returns for partnerships with assets or any item of income of more than $10 million in any of the three preceding years;

• Partnership returns for partnerships with more than 10 partners;

• Returns of real estate investment trusts (REITs), real estate mortgage investment conduits (REMICs), regulated investment companies (RICs), and all insurance companies; and

• Corporate returns for corporations with $10 million or more in assets or more than 10 shareholders.

The proposal would also require electronic filing for the following forms:

• Form 8918, Material Advisor Disclosure Statement;

• Form 8886, Reportable Transaction Disclosure Statement;

• Form 1042, Annual Withholding Tax Return for US Source Income of Foreign Persons;

• Form 8038-CP, Return for Credit Payments to Issuers of Qualified Bonds; and

• Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

Require Employers to Withhold Tax on Failed Nonqualified Deferred Compensation Plans

For nonqualified deferred compensation (NQDC) arrangements that fail to comply with election and distribution timing requirements, employees in the arrangement must include vested NQDC in income currently, and the NQDC is subject to a 20% additional tax, and in some circumstances, an additional interest tax. The proposal would require employers to withhold the 20% additional tax and additional interest tax on the NQDC included in an employee’s income due to the noncompliance of the NQDC arrangement.

IRS Regulation of Paid Return Preparers

The Greenbook proposal would amend 31 U.S.C. § 330 to provide the IRS authority to regulate paid preparers of federal tax returns, including the ability to establish minimum competency standards. The current version of Circular 230, which regulates practice before the IRS, includes regulations pertaining to paid return preparers, but the US Court of Appeals for the District of Columbia Circuit determined that these regulations exceeded the IRS’s authority in 2014. See Loving v. Commissioner, 742 F.3d 1013 (D.C. Cir. 2014).

The proposal would also increase the amount of the tax penalties that apply to paid tax return preparers for willful, reckless, or unreasonable understatements, as well as for forms of noncompliance that do not involve an understatement of tax. Additionally, the proposal would establish new penalties for the appropriation of Preparer Tax Identification Numbers (PTIN) and Electronic Filing Identification Numbers (EFIN) and for failing to disclose the use of a paid tax return preparer.

Extend Statute of Limitations for Listed Transactions

Similar to the 2022 Greenbook, this proposal would increase the limitations period under section 6501(a) for returns reporting benefits from listed transactions from three years to six years. The proposal also would increase the limitations period for listed transactions under section 6501(c)(10) from one year to three years. This proposed change would be effective on the date of enactment.

Impose Liability on Shareholders to Collect Unpaid Income Taxes of "Applicable Corporations"

The Greenbook proposal would add a new section to the Code that would impose on shareholders who sell the stock of an "applicable C corporation" secondary liability (without resort to any State law) for payment of the applicable C corporation’s income taxes, interest, additions to tax, and penalties to the extent of the sales proceeds received by the shareholders. For purposes of the proposal, an applicable C corporation is any C corporation (or successor) two thirds or more of whose assets consist of cash and passive investment assets. The proposal applies to shareholders who dispose of a controlling interest (at least 50%) in the stock of an applicable C corporation within a 12-month period in exchange for consideration other than stock issued by the acquirer of the applicable C corporation stock. The secondary liability would arise only after the applicable C corporation was assessed a tax liability within the 12-month period before or after the date that its stock was sold and the applicable C corporation did not pay such amounts within 180 days after assessment. The proposed changes would be effective for sales of controlling interests in the stock of applicable C corporations occurring on or after April 10, 2014.

Impose Affirmative Duty to Disclose a Position Contrary to a Regulation

The Greenbook proposal would impose an affirmative requirement on taxpayers to disclose a position on a tax return that is contrary to a regulation. Except to the extent provided in regulations for failures due to reasonable cause and not willful neglect, a taxpayer who fails to make the required disclosure would be subject to an assessable penalty that is 75% of the decrease in tax shown on the return as a result of the position. The penalty will not be less than $10,000 or more than $200,000, adjusted for inflation. The penalty would not apply if a taxpayer reasonably and in good faith believed that its position is consistent with the regulation. The penalty would apply regardless of whether the taxpayer’s interpretation of the regulation is ultimately upheld. The proposal would be effective for returns filed after the date of enactment.

Extend Statute of Limitations for Omitted Gross Income more than $100 million

Section 6501 generally requires the IRS to assess a tax within three years after the filing of a return, subject to several exceptions. The proposal would amend section 6501 to provide a six-year statute of limitations if a taxpayer omits from gross income more than $100 million on a return. The proposal would be effective for returns required to be filed after the date of enactment.

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